Belfast Telegraph

Wednesday 17 September 2014

If it is the end of the tunnel, then where’s the light?

Who reads the second paragraph?” snarls Walter Matthau as the ruthless editor in The Front Page.

Jack O'Connor, boss of the Siptu union, must have seen the movie. Or, come to think of it, he may share some traits in common with Matthau’s editor character.

In any event, he applied the technique, and the journalists gobbled the opening paragraphs with the blind instinct of hungry sharks.

“Public sector workers must consider more strikes,” was the gist of the headlines.

However, break the habit of a lifetime and read it all, in the original, and the most striking thing — if you’ll pardon the pun — is that there is no mention of striking after those opening paragraphs.

That is not to say that Mr ‘O Connor would not advocate strikes if faced with another budget like last December’s. But that is not what he was on about.

The other reason for paying attention to the speech is that the timing is impeccable. This is a coincidence, but the fact is that February has been a bad month for the global economy. Perhaps it would be going too far to say that the skies are darkening, but there is a growing consensus that they show no signs of brightening.

That is not good. What light there is is artificial, fuelled by low interest rates, huge government borrowing, and even significant printing of new money. Now, governments and central banks are running out of fuel. They need the private economy to start generating some growth on its own. It does not seem to be doing so.

Without that, the authorities are pushing a piece of string.

The Bank of England has created £200bn in new money by purchasing government loans from the banks. Yet only £6bn has turned up in the money circulating in the economy.

Mr O'Connor might describe this as bankers, ‘feathering their own nest,’ — as he does the failure of the Irish bank rescues to get credit flowing satisfactorily. Yet there is an alternative, even more alarming, explanation; that without the ‘printing presses’ the UK money supply might have fallen by a further £200bn or so.

Not surprisingly, Irish private deflation is one of the worst. It is nice to be commended for our efforts but the combination of banking losses, household wealth loss and erosion of the tax base makes Ireland’s situation dangerous.

One thing Mr O’Connor has got absolutely right is that simply keeping our heads down will not be enough. His description of how the public service should look in the future is also one with which this column could heartily agree; with which the Competitiveness Council could agree; and, while it may not be entirely helpful, with which ISME could at least agree. We make progress already.

There may be an even better opportunity from the fact that, unlike the 1980s, this is not just a public sector crisis. It is far worse than that, because no national agreement can make private actors stop saving, or order a recovery in the world economy.

In this regard, the consensus among economists could also provide scope for agreement. It is the old Keynesian formula, that recovery must be led by investment, and that public investment should initiate the process.

We have seen exactly the opposite from the Government — the virtual abandonment of new capital spending in favour of the easy, but futile, attempt to sustain |current spending. Even that |required pay cuts.

Mr O’Connor and the others have accepted the need for unpalatable choices. Unpalatable they will surely be, but some choices offer more hope than others. It is time for someone to pick up the phone, and for someone to answer it.

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